Roth IRA’s: The Retirement Option That Puts You In The Drivers Seat

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As many of you begin to think about retirement, start planning for the future, or look for ways build wealth and extend your family legacy, you will undoubtedly have to wade through endless research and opinions from every financial blogger in cyberspace. You may already be contributing to a 401(k) or a pension plan through your employer but are looking for a way to diversify. You may be just out of college or nearing the magical retirement age. In any case, there is one retirement option that could be the answer to many of your concerns.


A Roth IRA is an Individual Retirement Account that you pay into with after tax dollars, and later, make withdrawals within Roth IRA guidelines that are tax free. This sets it apart from traditional IRAs and most other retirement options in which you pay into the account with pre tax dollars and; in turn, pay taxes on your withdrawals.


The eligibility requirements for opening a Roth IRA are pretty straight forward. First of all, you must have a taxable income. The vast majority of you should have that covered. Also, your modified adjusted gross income must be below $196,000 if you are married filing jointly. If you are single, head of household, or married filing separately, your income must be under $133,000. Finally, your income must be under $10,000 if you are married filing separately and you lived with your spouse at any time in the previous year.


There are maximum annual contributions that can be made to a Roth IRA. If you are under the age of 50, the maximum annual contribution you can make is $5,500. If you are 50 or older, the maximum annual contribution is $6,500. Now, there are certain rules about maximum contributions if your income is on the high end of the eligibility bracket, so it would be prudent to talk to a qualified financial advisor about your Roth IRA contributions.  


Next, let’s talk about the five-year rule on Roth IRAs. In order to make tax free withdrawals on any of the earnings of your Roth IRA, you must have held the IRA for at least five years. This does not mean that you would have to make steady contributions for at least five years, but it does mean that the account would have needed to have an


initial contribution and then held for five years. The five year rule does not apply to the contributions you have made to your Roth IRA, only the earnings on the contributions. As with other retirement accounts, you must also be 59 ½ to make penalty free withdrawals on the earnings.  


Another beautiful feature of the Roth IRA is that there are no mandatory Required Minimum Distributions (RMD) at age 70 ½ like traditional IRAs. This is extremely beneficial because you may not wish to withdraw funds at that time and instead choose to continue building wealth for your heirs. However, upon the death of the owner of the account, Roth IRAs are subject to RMDs.


After reading this article, you may find yourself asking, “how do I start a Roth IRA?” because you see how beneficial they are. It would be beyond the scope of this article to cover all the ways that you can do that, so the best thing to do would be to talk to a financial advisor that can point you in the right direction and answer all of your questions. When you do have that conversation, be sure to ask about a Roth 401(k) as well as the tax advantages of rolling over a traditional IRA into a Roth IRA in low income earning years.  


So remember, as you plan for retirement, no matter what your age or position in life is, a Roth IRA may be the right option for you because of its unique features. You can make tax free withdrawals, not worry about RMDs in your lifetime, and build a legacy for your family!  


From the Team here at LIA – Happy Financial Planning


Laura Carlson offers Investment Advisory Services through Inspire Advisors, LLC (Hollister, CA 877-859-6383), an SEC Registered Investment Advisor. Inspire Advisors, LLC, and its advisors do not render tax, legal, or accounting advice.  Life Impact Advisors is not a registered investment advisor and is an affiliate of Inspire Advisors, LLC.  Insurance products and services are offered through Laura Carlson independent agent.

Life Impact Advisors, Laura Carlson and Inspire Advisors, LLC are not affiliated with or endorsed by the Social Security Administration or any government agency.